Biotech reinvented - where do you go from here?

Pharmaceuticals and Life Sciences
Biotech reinvented
Where do you go from here?
Table of contents
Table of contents
How well has Biotech really done?
A business model that's bust?
Blurring boundaries
Putting up a united front
The size of the prize
Making the sums add up
Acknowledgements
Biotech Reinvented
Table of contents
arena – and reinvent itself by adopting
launched, and some of these therapies
a more collaborative approach. In
have proved very effective in treating
The biotechnology industry (Biotech) is
the following pages, we'll look at the
complex conditions.4 Five of the 10 top-
now about 30 years old – a long enough main trends dictating the need for
selling medicines in 2009 originated in
time in which to evaluate how it's done.
a new way of conducting research
Biotech's labs (see Table 1).
Unfortunately, despite some notable
and development (R&D), and two
The bad news is that Biotech hasn't
successes, it hasn't completely fulfilled
organisational concepts that would help
made a significant difference to
biopharmaceutical companies become
Pharma's productivity, measured in
far more efficient. We'll also touch on
The business model on which Biotech
terms of the number of new treatments
the implications for other parts of the
has historically relied is also breaking
reaching the market. Between 1950
value chain.
down, as the research base moves east
and 2008, the US Food and Drug
and raising funds gets harder. And the
Administration (FDA) approved 1,222
distinctions between Biotech and the
How well has Biotech
therapies (1,103 small molecules and 119
pharmaceutical industry (Pharma) are
large molecules). Given that it takes about
disappearing, with the convergence
really done?
10 years to develop a drug, the total
of the two sectors. But Biotech can't
number of approvals should have started
turn to Pharma for guidance because
If the birth of modern biotechnology
rising in about 1990, if Biotech had
Pharma's business model has other
can be pinned down to any particular
succeeded in improving Pharma's output.
flaws – as we explained in "Pharma
date, it's probably 1980, when the US
But, as Figure 1 shows, the number
2020: Challenging business models",
Supreme Court ruled in Diamond v.
of approvals has remained broadly
the White Paper we published in April
Chakrabarty that a genetically modified
2009.1 So what should Biotech do?
microorganism could be patented.2
The reason's simple: Biotech hasn't
Amgen was formed the same year, and
We believe it should capitalise on the
reduced the inherent risk in drug
Genentech (now part of Roche) was
opportunities emerging in the healthcare
discovery and development. Average
four years old.3 Since then, Biotech
development times for the kind of
has profoundly changed the sort of
molecules on which biotech firms
What is Biotech?
research Pharma conducts and the sort
generally focus – i.e., recombinant
of products it makes (see sidebar, What
proteins and monoclonal antibodies – are
Biotech isn't a distinct sector so
is Biotech?). But how well has Biotech
slightly longer than they are for small
much as it's a collection of disruptive
molecules (97.7 months versus 90.3
technologies for discovering and developing new medicines, and
The good news is that it's produced
months). Average development costs
diagnosing and treating patients
some valuable new platform
are much the same (US$1.24 billion
more effectively. We're going to
technologies and treatments. RNA
versus US$1.32 billion). And the overall
focus here on Biotech's business
interference has, for example, provided
success rate is still only 9.1%, compared
model – more specifically, its impact
a way of analysing gene activity to
with 6.7% for a small molecule.6 In other
on pharmaceutical productivity, and
identify novel disease targets. More
words, biotech companies don't develop
its sustainability (or otherwise) in
than 100 different recombinant
new medicines much more quickly or
the current economic and scientific
protein-based drugs and at least 40
economically than pharma companies do.
‘companion' diagnostics have also been
Table 1: The best sellers of 2009
Therapeutic Subcategory
Worldwide Sales ($m)
Anti-hyperlipidaemics
Chiral chemistry
Platelet aggregation inhibitors
Small molecule chemistry
Other bronchodilators
Small molecule chemistry
Other anti-rheumatics
Recombinant product
Angiotensin II antagonists
Small molecule chemistry
Other anti-rheumatics
Monoclonal antibody
Anti-neoplastic MAbs
Monoclonal antibody
Anti-neoplastic MAbs
Monoclonal antibody
Other anti-rheumatics
Monoclonal antibody
Small molecule chemistry
Source: EvaluatePharma
Figure 1: A flat performance
Impact of faster more
productive biotech
should have started
Small molecules (NMEs)
here. An increase in
productivity has not
Number of NMEs or NBEs 10
Source: Bernard Munos, "Lessons from 60 years of pharmaceutical innovation"
Biotech Reinvented
A business model that's Figure 2: Biotech's business model
Venture Capital + Enterpreneurial Source
Worse still, the business model on which Biotech has relied for the past
30 years is now breaking down.
This model is based on external
investment – typically, venture capital
– in an innovative idea arising from an
entrepreneurial source, often a group of
academics (see Figure 2). It assumes
that investors can realise value through one of two routes: flotation on the public markets or, more frequently, a trade sale to an established pharma company.
And it carries a very high risk of failure. In one recent study of 1,606 biotech investments that were realised between 1986 and 2008, 704 investments
resulted in a full or partial loss, while 16 only covered their costs.7
The same study shows that the gross rate of return on these 1,606 biotech investments was 25.7%, compared with a pooled average return of 17%
Figure 3: Big variations in cash multiples
on all venture capital invested over
the same period. But costs and the ‘overhang' from unrealised investments reduced the net rate of return to about 15.7%, and there were huge variations in the cash multiples earned by the 886 investments that made a profit
(see Figure 3).8 Ten-year returns have
also deteriorated dramatically since
2008. The average return on a 10-year investment ending in December 2008
was 35%, thanks to the lingering effects
of the technology bubble. In March 2010, it had plummeted to -3.7%.9
So what distinguishes the successes
from the failures? Our analysis of the
companies behind some of the top-
Source: Iain Cockburn & Josh Lerner, "The Cost of Capital for Early-Stage Biotechnology Ventures" (2009)
selling biologics on the market shows
Note: Figures include all exited biotech deals as of December 31, 2008
they have several common features.
Figure 4: Asia's higher degrees of change
Most of them started up in the US in the late 1970s and 1980s, floated very early
in their history and raised a substantial
amount of funds in the process. They were all subsequently acquired by big
pharma companies, and the products they make are now marketed by one or
more such firms (see Table 2).
However, many of the external
conditions that enabled these biotech
companies to thrive are rapidly
vanishing. The research base is shifting geographically, the emerging economies
are competing more aggressively and financial investors are getting more
Source: US National Science Foundation
Note: Data are for 1999-2006 in the case of France and 1998-2005 in the case of India
The research base is moving East, as Asia's emerging economies invest more in higher education and the ‘reverse brain drain' picks up pace. Between 1998 and 2006, the number of students graduating with doctorates in the physical and biological sciences soared 43% in India and a staggering 222% in China, far outstripping the rate of increase in the West (see Figure 4).10 The ‘returnee' trend has been equally Table 2: Winning ways
Originator Company
Product Origins in Initial Public Well
Roche/ Biogen Idec
Sources: PricewaterhouseCoopers and EvaluatePharma
Biotech Reinvented
pronounced. In the past two decades
Capital constraints
venture capitalists – particularly
about 100,000 highly skilled Indian and
European venture capitalists – from
Chinese expatriates have left the US for
The recession has also made it much
investing in the sector. In 2009, the
their native countries. Another 100,000
more difficult for biotech companies
amount of venture capital raised by
are expected to follow them in the next
in the developed economies to raise
biotech companies based in Europe
five years, as the opportunities at home
capital. In 2008, Biotech raised just
was just €800 million ($1.1 billion), less
$16.3 billion in the US, Europe and
than at any time since 2003.17 And
Canada – 45% less than the previous
money's likely to remain very tight, as
Hotter competition
year. The situation improved in 2009,
most biotech executives recognise;
but the total amount raised fell well
84% of the participants at a recent
Some of the emerging countries are
short of historical levels, and nearly half
biopharmaceutical conference thought
also actively building domestic biotech
of it went to a handful of established
funding was the industry's single
industries. Singapore launched its
public companies in follow-on offerings
Biomedical Sciences Initiative in 2000
biggest challenge.18
(see Table 3).15
and has already created a powerful
They've got good reason to worry.
biopharmaceutical nexus. South Korea
There are plenty of other signs of the
According to one estimate, 207 of
set up a similar scheme in the late
toll the past two years have exacted.
the 266 private and public European
1990s, and has earmarked $14.3 billion
In 2009, for example, 10 biotech firms
biotech companies with products or
for its ‘BioVision 2016' programme.12
(including the highly regarded deCODE
platform technologies in the clinic or
China has invested $9.2 billion in
genetics) filed for bankruptcy in the US,
already on the market urgently need
technological R&D, including biotech,
while another nine firms closed up shop
to raise funds – and they need a good
in the last 18 months alone.13 And India
without being officially bankrupt.16 And
$4.8 billion between them.19 Given that
is currently exploring plans to become
though financing conditions have now
the total amount of European venture
one of the world's top five biosimilars
started easing, most industry observers
capital invested in the sector was just
producers by 2020.14
believe the window for initial public
€501 million ($666.6 million) in the first
offerings won't open again anytime soon.
What's more, many of the companies
half of 2010, it's very doubtful they'll all
based in the emerging economies
This has inevitably deterred many
aren't just imitating the West; they're learning from its mistakes. They're dispensing with the costly infrastructure that burdens companies in developed
Table 3: Fundraising below pre-recession norms
countries to create new business models that are leaner and more
economical, as well as pioneering
Initial Public Offerings
innovative products and processes.
Follow-on Offerings
So the US is gradually losing its pre-
eminence as a centre of biomedical research. It still leads the way and is
likely to do so for at least another five
years. But it's no longer the only gorilla
Source: Ernst & Young, Beyond Borders: Global Biotechnology Report, 2010
Note: Numbers may appear inconsistent because of rounding
Blurring boundaries
– up from a third in 2000-2002 – and
following suit, while Novartis has moved
the industry leaders have piled in even
its research headquarters to Cambridge,
However, yet another change is
more heavily over the past year.23 In
Massachusetts, and hired a Harvard
taking place: the boundaries between
November 2009, for example, Pfizer
professor to run it.26
Biotech and Pharma are blurring. One
licensed the rights to a new treatment
So Biotech and Pharma are effectively
sign of the change is the fact that
for Gaucher disease, a condition fewer
becoming one industry – the
several large pharma companies have
than 6,000 Americans suffer from.24
biopharmaceutical industry – although
In February 2010, GlaxoSmithKline
established corporate venture capital
there's a limit to how far Pharma can go
launched a standalone business unit for
arms specifically to make strategic,
down the Biotech route. First, biotech
orphan drugs, and Pfizer did likewise a
as opposed to financial, investments
companies typically perform a few key
few months later.25
in Biotech. Novartis has created an
trials, rather than using the belt-and-
option fund with the right to in-license
Some of the oldest biotech companies
braces strategy favoured by Pharma.
innovative products or technologies
are simultaneously repositioning
This is partly because most of them
from the companies it backs, for
themselves as biopharmaceutical
have fewer resources. It's also because
example.21 Similarly, Merck Serono
companies, and several pharma
small companies are less likely than
has set up a fund ‘to support scientific
companies are restructuring their R&D
large companies to ask for scientific
excellence in [its] core fields of interest
functions to emulate Biotech's more
advice from the regulators and, even
and provide start-up companies with
entrepreneurial approach to discovering
when they do ask, they're less likely to comply with the advice they get.27
the opportunity to interact' with it.22
new medicines. GlaxoSmithKline started this trend in 2000, when it divided
But biotech companies pay a price for
Many pharma companies are also
thousands of its researchers into groups taking the fast route, with much higher
focusing on developing biologics and
of 400 or so and gave them their own
failure rates in late-stage development
specialist therapies for orphan diseases, budgets to manage. It subsequently
(see Table 4).28
because they offer a faster and more
created even smaller Discovery
Second, therapies for very small patient
focused route to market. In 2006-2008,
Performance Units of 20 to 60 people,
populations can't deliver the returns
Big Pharma produced more than half
each focusing on a different disease
produced by mass-market medicines,
the orphan drugs approved by the FDA
or technology. AstraZeneca is now
unless they're sold for very high prices. However, patients in many countries can't afford such prices and, even in
Table 4: Biotech companies fall more often at the final post
more affluent markets, cash-strapped healthcare payers are pushing back.
FDA Percentage of
The European Union recently altered
approvals FDA approvals
failures Phase III failures
its orphan drug law, for example, to let
regulators reduce the 10-year period
Biotech-pharma alliances
of market exclusivity for orphan drugs,
Acquisitions/licences by pharma
where they think the profits from non-orphan indications are ‘unseemly'.29
In short, the external conditions that
Source: Elizabeth A. Czerepak & Stefan Ryser, "Drug approvals and failures: implications for alliances" (2008)
helped produce a drug-discovery
Note: All products were approved for the first time by the FDA between January 2006 and December 2007
powerhouse like Genentech have all
Biotech Reinvented
but disappeared. Pharma can't copy
because each has access to only one
agencies, universities, academic
Biotech's discovery and development
part of the biochemical puzzle. This
medical centres, research institutes and
methodology too closely and, even
not only slows down the discovery and
patient groups. They aim to overcome
if it could, Biotech hasn't brought a
development process, it also increases
common bottlenecks in early-stage
golden era of productivity that would
costs, as numerous organisations
biomedical research by enabling the
justify doing so. All biopharmaceutical
replicate the same studies on the same
participants to piece together the
companies – whether they're
targets. Conversely, collaboration
scientific data on the pathophysiology
biotechnological or pharmaceutical in
accelerates and facilitates the process,
of specific diseases and potential
origin – will ultimately, therefore, have to
and two new concepts – precompetitive
targets sitting in their separate
adopt a very different business model.
discovery federations and competitive
organisations (see Figure 5).
development consortia – lend
A number of precompetitive discovery
themselves to just such an approach.
federations have already been
Putting up a united front
established. Most of these collaborations
Precompetitive discovery
have been set up fairly recently and
So what might such a model look
lie towards the philanthropic end of
like? If it's to be successful, it's got
the spectrum. They focus on areas
to be more efficient – and one way of
Precompetitive discovery federations
of unmet need in the less developed
becoming more efficient is to become
are public-private partnerships in which
world or diseases for which it's
more collaborative. Sequestering
biopharmaceutical companies swap
particularly difficult to develop safe,
intellectual property in different
knowledge, data and resources with
effective medicines. Alternatively,
organisations impedes innovation,
one another, as well as with government they aim to make a particular region
Figure 5: Precompetitive discovery federations facilitate and accelerate innovation
Biopharmaceutical
Alzheimer's disease
Precompetitive Discovery Federations
more competitive (see sidebar,
they do will be performed virtually,
Connecting the dots).Connecting the dots
as the world becomes increasingly
one such alliance has already proved
interconnected. And each federation
In early 2010, Eli Lilly, Merck and
an outstanding success. This is the
will be disbanded once it's solved the
Pfizer formed the Asian Cancer
Structural Genomics Consortium –
problem it was set up to deal with,
Research Group to promote research
backed by GlaxoSmithKline, Merck and
although the insights it generates
on lung and gastric cancers, and other
Novartis, among other organisations –
will live on – just as filmmakers form
forms of cancer commonly found in
which published 450 protein structures
syndicates to produce different films
Asia. The three companies plan to
within three years of starting work, and
and the films they create outlast the
create one of the ‘most extensive
aims to publish another 660 structures
syndicates themselves.
pharmacogenomic cancer databases
known to date' over the next two
There are many advantages to this
years. Meanwhile, the Coalition
Translating such findings into useful
approach. It would enable each
Against Major Diseases is focusing
new therapies is another matter –
participant to save money by investing
on the development of quantitative
and it's much too early to assess the
less than it would have to do to support
disease progression models
impact of precompetitive discovery
its own internal research or exclusive
for complex neurodegenerative
federations in terms of reducing lead
external research programme. It would
diseases like Alzheimer's disease
times and costs, or treating intractable
also reduce unnecessary duplication,
and Parkinson's disease. And the
diseases. Nevertheless, the industry
help all the participants make faster,
Innovative Medicines Initiative (IMI) is
clearly isn't averse to the idea of
better progress by combining their
orchestrating the European Union's
collaborating, and we think that, by
insights and permit them to take more
efforts to address major obstacles
2020, all precompetitive research will be informed investment decisions. To put it
in drug discovery by pooling the
conducted in this way.
another way, precompetitive discovery
resources of biopharmaceutical
Experts from numerous organisations
federations could end the "current modus
companies, research institutions and
will assemble to solve a specific
operandi in which commercially driven
patient groups throughout Europe. It
problem, regardless of whether they
clinical trials fall like dominos in the clinic
has a €1 billion grant from Brussels
work in industry or academia, and
– to the detriment of each company, to
and is currently supporting 15
whether they live in the Americas,
the detriment of the patients and with
research alliances.
Europe or Asia. Much of the work
relatively little [shared] learning".32
Biotech Reinvented
Table of contents
Of course, determining the boundaries
The potential cost savings might also
Competitive development
between precompetitive and
prove incentive enough to stimulate
competitive research is difficult – and
a new attitude to intellectual property
opinions will vary, depending on the
management. Pharma companies
The discovery process isn't the only
interests of the respective parties.
typically patent all the information they
area of scientific R&D that would
Nevertheless, it's possible to see how
hold to block their rivals from working
benefit from closer collaboration.
some of the lines might get drawn.
in the same area. But evidence from
The development process could also
Data preceding the point of filing for a
other industries suggests that most
be improved with the introduction of
patent (e.g., data on genes, pathways
patents remain uncommercialised;
competitive development consortia
and bioactivity) could provide various
Siemens and Procter & Gamble recently
(as we've called them) in which rival
opportunities for precompetitive
reported, for example, that they've only
biopharmaceutical companies join
collaboration, for example. And some
used 10% of their patent portfolios.34
forces with each other, as well as with
companies might well be prepared to go It would therefore be far more sensible
contract research organisations and
considerably further. GlaxoSmithKline is
for all companies to segment their
platform technology providers (see
one such instance; it recently proposed
information into three categories:
Figure 6). At present, four or five firms
an industry-wide, open-access ‘patent
information they can openly share;
often focus on the same target at the
pool' and offered to license all its
information they can safely sell to a third same time, and each might develop
patented knowledge for free, as long as
party; and information they plan to use
two or three compounds to hit that
the knowledge is used solely to develop
target. But if they pooled their portfolios,
treatments for neglected diseases in the
they could concentrate on the best
50 poorest countries.33
drug candidates, regardless of which
Figure 6: Competitive development consortia minimise waste and enhance productivity
Contract Research &
Platform Technology Providers
Competitive Development Consortia
company had invented them, thereby
and securely – have been extensively
New best friends
eliminating a great deal of waste.
documented. Making sense of disparate pieces of information and identifying
AstraZeneca and Merck recently
Big Pharma has traditionally shied away
meaningful correlations between
embarked on a landmark partnership
from such arrangements, yet competing
superficially unrelated phenomena is still
to develop a combination therapy
heavyweights in a number of other
an incredibly labour-intensive task.
for cancer, with each contributing an
industries have successfully come
investigational compound to the mix.
together to develop new products.
However, solutions to all these problems
Combination therapies for cancer
General Motors, Daimler and BMW
are slowly emerging. The Human
are common, but they're usually
collaborated to create the hybrid
Proteome Organisation's Proteomics
tested late in clinical development or
petroleum-electric powertrain solution,
Standards Initiative has already
after registration. Or a new potential
for example. And there's evidence
released standards for representing and
treatment is tested in combination
that some large pharma companies
exchanging proteomic data from mass
with the standard therapy. However,
may now be willing to take a more
spectrometry, molecular interactions
AstraZeneca's compound was still in
open stance (see sidebar, New best
and protein separation techniques,
Phase II, and Merck's compound had
friends).36
for example, while the Clinical Data
only been tested in 100 people when
Interchange Standards Consortium
the two companies decided to join
Robust data aggregators
(CDISC) is developing standards for
exchanging clinical research data
The success of precompetitive
and metadata, and various other data
They entered into a staged agreement,
discovery federations and competitive
standards are well underway.37
beginning with preclinical trials. When
development consortia clearly hinges
the results proved promising, they
on the existence of data aggregators
Similarly, use of semantic technologies
decided to collaborate further and
capable of collecting and synthesising
for integrating and analysing data
jointly devised a plan for testing the
data from all the participants in a
is growing. Johnson & Johnson is
treatment in Phase I trials. Under the
particular group. No such organisations
conducting a pilot semantic project to
terms of the deal, the two companies
currently exist. Nor, indeed, do some
capture metadata on biological data
will share the decision rights and
of the tools required to manage vast
sources and make the information
costs, and any intellectual property
amounts of biological and chemical data.
easier to retrieve.38 Pfizer, Merck,
that arises from the collaboration. The
Novartis and Eli Lilly are also
The challenges – including the sheer
big question is how the regulators will
experimenting with the semantic web.39
heterogeneity of the data, lack of
respond if they're successful, since
And technologies like cloud computing
data standards, limitations of the
nobody has ever co-registered two
are evolving to create a secure, reliable
available data-mining technologies and
unregistered drugs before.
and flexible infrastructure for sharing
immaturity of the IT platforms needed
data and applications.
to let researchers share data easily
Biotech Reinvented
Meanwhile, several big technology
‘innovation culture' is equally important.
industry researchers need discoveries
providers have entered the
In view of the investment levels and
that have commercial potential. And
computational bioinformatics space.
risks associated with drug discovery
it's all too easy for a biotech company
IBM leads the way. It's currently
and development, all the members of a
with a single platform technology or
engaged in about 20 projects, ranging
precompetitive discovery federation or
molecule to overvalue its intellectual
from the development of sophisticated
competitive development consortium
property. It's only by understanding
analytical tools to original research
will need to be agile, willing to explore
such differences in perspective and
on ‘junk' genes and RNA interference
new ideas and open to insights
negotiating fairly that a precompetitive
in eukaryotes and viruses.40 Oracle,
produced outside their own walls.
discovery federation or competitive
Hewlett-Packard and Intel are also
Senior management will also need
development consortium can prosper.
actively focusing on bioinformatics.
to encourage creative brainstorming,
If the venture capital industry is to play
networking, calculated risk-taking,
Some formidable obstacles remain,
a major part in the future of biotech, it
experimentation and questioning of the
but we believe these companies
will have to be more pragmatic, too. The
will eventually play a major role in
most successful funds aim for returns of
analysing genomic and clinical data
two to four times the initial investment,
to help individual consortia research
A new spirit of realism
which is the equivalent of a compound
new medicines and the regulators
annual growth rate of 7-15% over a
That's not all. If this new business
evaluate submissions more accurately.
typical 10-year investment period. By
model is to work, it will require greater
Some of them may even assume
way of comparison, the FTSE Small-
realism on the part of everyone
responsibility for developing disease
Cap Index generated a total annual
involved. Biotech executives and
models and predicting the interaction of
return of 1.1% between May 2000 and
academics sometimes complain of Big
different molecules with a given target.
May 2010 – evidence of just how high
Pharma's ‘arrogance', for example.43
We outlined how this might work in
the bar has been set.44
But size isn't everything and the biggest
"Pharma 2020: Virtual R&D", where we
pharma companies can't expect to have
discussed how the largest technology
everything their own way. So they'll
vendors could host ‘virtual patients' on
The size of the prize
need to become more flexible.
behalf of the industry as a whole.41
The research institutes and biotech
So there are some considerable cultural,
An innovation culture
firms they join forces with will also need
behavioural and practical hurdles,
to have more realistic expectations.
and some of them may be difficult to
Reliable data aggregators aren't the
Whereas academic researchers prize
overcome. But we believe they're well
only prerequisite for success; an
scientific knowledge for its own sake,
worth resolving, given the rewards
collaboration can bring. It's no accident
would cut R&D costs by about $160m,
medical centres will be responsible for
that IBM has doubled its software
as well as accelerating market launch
generating original ideas and providing
revenues to more than $20 billion, since
by nearly five months. In fact, a 5%
disease biology and platform
embracing open-source computing.45
improvement in phase transition rates
technologies on a fee-for-service basis.
alone would trim about $111m from
Precompetitive discovery federations
The biggest companies will thus benefit
and competitive development
by getting access to more innovation,
consortia could collectively enable
However, the participants would profit
cutting their costs and becoming more
the biopharmaceutical industry to use
individually, too. We envisage that the
productive – improvements that will help
precious resources more intelligently,
largest biopharmaceutical companies
them fend off criticism from healthcare
make more astute investment decisions
will be responsible for coordinating and
payers and patients angered by the
and develop better medicines more
funding the federations and consortia in
high prices of many new medicines.
economically (see Figure 7). Even
which they participate. They'll also draw Meanwhile, the smaller ones will get
incremental improvements could yield
on their huge compound libraries to
more stable, long-term financing,
significant savings. We estimate that,
develop new molecules and shepherd
better opportunities for benchmarking
given average development costs and
them through the regulatory evaluation
the value of their own contributions
lead times, a 5% increase in success
process to the marketplace. Meanwhile,
and access to critical regulatory and
rates for each phase transition and a
smaller biopharmaceutical companies,
marketing skills.
5% reduction in development times
research institutes and academic
Figure 7: Greater collaboration will help everyone
Competitive Development Consortium
Discovery Federation
• Systems biology
• Molecule invention and protec-
• Clinical testing in the most ap-
• Disease analysis and modelling
propriate environment
• Much higher probability of suc-
• Shorter development time due
• Functional proteomics
cess as a result of the work of
to live licensing
• Predictive screening
• Lower cost as a result of higher
probability of technical and
commercial success
Fewer, more certain
Transparent testing
Better cheaper treatments
Biotech Reinvented
Table of contents
Chain links
The shift from product provider to
Making the sums add up
outcomes manager has yet more
We've focused on R&D so far, but
consequences. Information will
The English philosopher Thomas
greater collaboration will be required
become as important a part of the
Hobbes famously described life in the
in the rest of the value chain, too –
sales proposition as the products
17th century as ‘nasty, brutish and
and any company that masters the
themselves, and much of the
short'.48 Healthcare has come a long
art of working closely with other R&D
information that's generated will come
way since then; life expectancy at birth
organisations will have a head start
from external sources. In effect, each
is now at least 75 years in large swathes
over its competitors because it will be
biopharmaceutical company will need to of the world, compared with 35-40
able to apply the lessons it's learned
create its own information supply chain
years when Hobbes was writing his
to the other parts of its business. Take
and manage it as carefully as it does
Leviathan.49 But greater longevity brings
commercialisation. Most treatments
manufacturing and distribution.
new challenges, and few people can
perform much better in clinical trials
The changes taking place in the
afford to pay many thousands of dollars
than they do in everyday life, and
traditional supply chain have similar
for the most advanced treatments.
healthcare payers almost everywhere
implications. Biologics are much more
Hard-pressed governments with a
are demanding more for their money.
difficult to make and move around
growing number of elderly citizens will
The opportunities for generating value
than small molecules because they're
be equally unable to foot the bill. So,
from standalone products are therefore
more susceptible to impurities in the
if we're to make the most of the years
getting smaller.
production process and more vulnerable we've gained, more effective, more
economical medicines will be vital –
That means biopharmaceutical
to damage during shipping. And since
and that entails collaboration between
companies will have to switch from
most such therapies can't be taken
everyone concerned.
selling medicines to managing
orally, new delivery devices – e.g., micro
outcomes. They'll have to bundle
needles, magnetically targeted carriers,
different products together and
nano-particles and polymer capsules –
supplement their therapies with health
are being developed. But these devices
management services like compliance
are also hard to manufacture.
monitoring, dietary guidance and fitness The industry will therefore have to
regimes. However, most companies
collaborate much more extensively, both
won't be able to create packages of
with contract manufacturers capable of
branded medicines and generics for
making biologics and complex devices,
different conditions singlehandedly,
and with specialist carriers capable of
so they'll have to collaborate with
transporting sensitive pharmaceutical
rival manufacturers. And few, if any,
freight in cold-chain conditions. If it's to
companies will be able to deliver all
capitalise on the increasing prosperity of
the services patients need, so they'll
the emerging markets, it will also have
have to collaborate with numerous
to build a much more geographically
other organisations, including hospitals,
dispersed supply chain – and it will only
clinics, technology vendors and lifestyle
be able to do this by joining forces with
service providers.47
local manufacturers and service providers.
We would like to thank the many people at PricewaterhouseCoopers who helped us to develop this report. We would also like to express our appreciation to all those external experts who so generously donated their time and effort to the project including:
Barrie Ward, Board member, Onyvax, Cancer Research Technology, Pharming Group N.V.
Cheryl Bishop, Business Development Manager, Roche Pharmaceuticals
Clive Birch, former PwC UK Life Sciences Leader
Mr David Dally, CFO, Merlion Pharmaceuticals Pte Ltd.
Gordon Cameron, CFO, Quotient Biosciences
Ms Nandita Chandavarkar, Director, Association for Biotechnology Led Enterprises
Peter Keen, Non Executive Director, Ark Therapeutics
Ray Spencer, Founder & CFO, Saturn BioSciences Ltd; Founder & Director, MGB Biopharma Ltd
Rob Arnold, Chairman, Clasemont Limited (& former PwC Life Sciences Partner)
Sam Smart, Independent Consultant
Dr Vijay Chandru, President, Association for Biotechnology Led Enterprises.
The views expressed herein are personal and do not reflect the views of the organisations represented by the individuals concerned.
Biotech Reinvented
Table of contents
1. PricewaterhouseCoopers, "Pharma 2020: Challenging business models" (April 2009).
2. Diamond, Commissioner of Patents and Trademarks v. Chakrabarty, United States Supreme Court, June 16, 1980 447 U.S. 303, 206 USPQ 193.
3. Amgen website, http://www.amgen.com/pdfs/Fact_Sheet_Amgen.pdf; and Genentech website, http://www.gene.com/gene/about/corporate/
4. Medco, "2010 Drug Trend Report", p. 46; and Jeanene Swanson, "Companion Diagnostics Take Off," Genome Technology (October 2009), http://
5. Bernard Munos, "Lessons from 60 years of pharmaceutical innovation", Nature Reviews Drug Discovery, Vol. 8 (2009): 959-968.
6. Joseph A. DiMasi, "Costs and Returns for New Drug Development", FTC Roundtable on the Pharmaceutical Industry (Washington DC, United
States: October 20, 2006), http://www.ftc.gov/be/workshops/pharmaceutical/DiMasi.pdf; and Joseph A. DiMasi & Henry G. Grabowski, "The Cost of Biopharmaceutical R&D: Is Biotech Different?" Managerial and Decision Economics, Vol. 28 (2007): 469-479, http://www.manhattan-institute.org/projectfda/wiley_interscience_cost_of_biopharm.pdf. All subsequent references are to US dollars.
7. Iain Cockburn & Josh Lerner, "The Cost of Capital for Early-Stage Biotechnology Ventures" (2009), http://nationalbbr.org/studiesandstats/nvca_
9. National Venture Capital Association, "Venture Capital Industry Saw Short Term Performance Improvements at the End of 2009" (May 14, 2010),
http://images.magnetmail.net/images/clients/NVCA/attach/Performancereleasefinalq42009.pdf; and "Venture Capital Returns Continued to Reflect Fragile Economic Conditions in the First Quarter of 2010" (July 28, 2010), http://www.marketwire.com/press-release/Venture-Capital-Returns-Continued-Reflect-Fragile-Economic-Conditions-First-Quarter-1296576.htm
10. US National Science Foundation, "Science and Engineering Indicators 2010", http://www.nsf.gov/statistics/seind10/appendix.htm
11. Sandip Roy, "Tracking a Reverse Brain Drain to India, China", New America Media (March 2, 2009), http://news.newamericamedia.org/news/
12. PricewaterhouseCoopers & Association of Biotechnology Led Enterprises, "Leadership in Affordable Therapeutic Products: A Biopharma Strategy
for India" (July 2010). Report prepared for the Department of Pharmaceuticals, Ministry of Chemicals & Fertilizers, Government of India.
13. Wang Guanqun "China to invest billions on key technology development, bio industry", Chinese Government Web Portal (May 13, 2009), http://
14. PricewaterhouseCoopers & Association of Biotechnology Led Enterprises, op. cit.
15. Ernst & Young, "Beyond Borders: Global Biotechnology Report, 2010" (2010).
16. Brady Huggett, "Optimism in public biotech rises as credit crunch recedes", Nature Biotechnology, Vol. 28, No. 1 (January 2010): 5-6.
17. Ernst & Young, op. cit. We have converted euros into US dollars using the average interbank exchange rate for 2009. This was 1 EUR: 1.39463
18. "The Future of Biotech." Panel discussion at The Biopharmaceutical Conference in Europe, Monte Carlo, Monaco (June 16-18, 2010).
19. Walter Yang, "Europe's Iceberg 2010: Advancing but frugal", BioCentury, Vol. 18. No. 24 (May 30, 2010): A15-18.
20. Dow Jones VentureSource, "Q1 2010 European Venture Financing Report April 29, 2010." http://www.dowjones.com/pressroom/SMPRs/
PM/1Q10EuropeFinancing.html; and "Growth Returns to European Venture Investment After Record Low a Year Ago." July 28, 2010. http://www.dowjones.com/pressroom/releases/2010/07282010-Q2EuropeVC-0050.asp. We have converted euros into US dollars using the average interbank exchange rate for the first half of 2010. This was 1 EUR: 1.33054 USD.
21. Roger Longman, "Novartis: Having & Eating Its Cake," The In Vivo Blog (August 3, 2007), http://invivoblog.blogspot.com/2007/08/novartis-having-
22. "Merck Serono sets up strategic venture capital fund to invest in biotech start-ups", The Medical News (March 23, 2009), http://www.news-
23. Walter Armstrong, "Pharma's Orphans", Pharmaceutical Executive (May 1, 2010), http://www.curefa.org/_pdf/
24. Andrew Pollack, "Pfizer Deal Signals a Move Into Treating Rare Diseases", The New York Times (December 1, 2009), http://www.nytimes.
25. John Carroll, "Pfizer creates a new R&D unit for rare diseases", FierceBiotech (June 15, 2010), http://www.fiercebiotech.com/story/pfizer-creates-
26. Jeanne Whalen, "Glaxo Tries Biotech Model to Spur Drug Innovations", The Wall Street Journal (July 1, 2010)
27. Jan Regnstrom, Franz Koenig et al., "Factors associated with success of market authorisation applications for pharmaceutical drugs submitted to
the European Medicines Agency," European Journal of Clinical Pharmacology (2010) 66:39–48.
28. Elizabeth A. Czerepak & Stefan Ryser, "Drug approvals and failures: implications for alliances", Nature Reviews Drug Discovery Vol. 7 (March
2008): 197-198.
29. Walter Armstrong, op. cit.
30. John Carroll, "Pharma giants join forces behind Asian cancer research group," FierceBiotech Research (February 23, 2010), http://www.
fiercebiotechresearch.com/story/pharma-giants-join-forces-behind-asian-cancer-research-group/2010-02-23; "Coalition Against Major Diseases," Critical Path Institute, http://www.c-path.org/CAMD.cfm; and Michel Goldman, "New Challenges for Drug Innovation: The European Perspective". Presentation at Forum CQDM, Montréal, Canada (June 8, 2010).
31. The Structural Genomics Consortium (April 2010), http://www.thesgc.org/about/SGC-overview.pdf
32. Aled M. Edwards, Chas Bountra et al., "Open access chemical and clinical probes to support drug discovery", Nature Chemical Biology Vol. 5
(2009): 436-440.
33. Michael R. Barnes, Lee Harland et al., "Lowering industry firewalls: pre-competitive informatics initiatives in drug discovery", Nature Reviews Drug Discovery, Vol. 8 (2009): 701-708.
34. Oliver Alexy, Paola Criscuolo et al., "Does IP strategy have to cripple open innovation?" MIT Sloane Management Review, Vol. 51 (2009): 73-77.
35. Salima Lin, Teri Melese et al., "Cultivating innovation beyond corporate walls". IBM Institute for Business Value (December 2008).
36. Pearl Huang, "Presentation at Extending the Spectrum of Precompetitive Collaboration in Oncology Research Workshop" (February 2010), http://
37. Sandra Orchard & Henning Hermjakob, "The HUPO proteomics standards initiative—easing communication and minimizing data loss in a
changing world," Briefings in Bioinformatics, Vol. 9, Issue 2 (2008): 166-173, http://bib.oxfordjournals.org/content/9/2/166.full; Clinical Data Interchange Standards Consortium, http://www.cdisc.org/mission-and-principles
38. Laurent Alquier, Tim Schultz & Susie Stephens, "Exploration of a Data Landscape using a Collaborative Linked Data Framework," Proceedings of
the HCLS/WWW2010/Workshop (Raleigh, North Carolina, April 26, 2010), http://imageweb.zoo.ox.ac.uk/pub/2010/Proceedings/FWCS2010/07/Paper7.pdf
39. Vivien Marx, "Pharmas Nudge Semantic Web Technology Toward Practical Drug Discovery Applications," BioInform (March 6, 2009), http://www.
40. IBM Computational Biology Center, https://researcher.ibm.com/researcher/view_project.php?id=1080
41. PricewaterhouseCoopers, "Pharma 2020: Virtual R&D" (June 2008), pp. 4-5.
42. Jeffrey H. Dyer, Hal B. Gregersen et al., "The Innovator's DNA", Harvard Business Review, Vol. 87, No. 12 (December 2009): 61-67.
43. Heather Fraser & Stuart Henderson, "A marriage of minds: Making biopharmaceutical collaborations work." IBM Institute for Business Value
(September 2007).
Biotech Reinvented
44. Details of the performance of the FTSE Small-Cap Index are available at http://www.ftse.com/Indices/UK_Indices/Downloads/FTSE_All-Share_
Index_Factsheet.pdf
45. Genevieve Khongwir, "Open Source a successful business model", ciol.com (September 10, 2008), http://www.ciol.com/Open-Source/Interviews/
46. We have based these estimates on average development costs of $1.24 billion and average development times of 97.7 months, using the figures
cited earlier in this paper.
47. For a comprehensive discussion of how we believe pharmaceutical commercialisation is likely to evolve over the next decade, please see
"Pharma 2020: Marketing the future" (February 2009).
48. Thomas Hobbes, Leviathan (1651).
49. "Life expectancy at birth," The CIA World Factbook (2010); and Eileen M. Crimmins & Caleb E. Finch, "Infection, inflammation, height, and
longevity", Proceedings of the National Academy of Sciences, Vol. 103, No. 2 (January 10, 2006): 498-503.
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